Italy seeks way out of political chaos

By Guy Dinmore, Tony Barber and Giulia Segreti

Updated 7:26 AM ET, Wed February 27, 2013

Italian center left Democratic Party leader Pier Luigi Bersani, pictured, laid claim Tuesday to mantle of prime minister but his party fell well short of a majority in senate raising specter of a minority government.

Story highlights

Italy's two main parties start work in forming new government after vote deadlock

Pier Luigi Bersani, Democratic party leader: "We did not win, even though we came first."

Election deadlock triggered steep falls in European share prices

Leaders of Italy's two main parties have made their opening gambits towards forming a new government after an election deadlock that saw voters reject European-backed austerity policies and a discredited political elite.

Pier Luigi Bersani, Democratic party leader, laid claim on Tuesday to the post of prime minister on the basis that his centre-left coalition had won the most votes in both houses of parliament, even though it fell well short of a majority in the senate.

But after the shock result on Monday that showed a surge in support for comedian Beppe Grillo's anti-establishment Five Star Movement, Mr Bersani admitted: "We did not win, even though we came first."

The centre-left leader indicated he would try to form a minority government. He called on all his opponents, including former prime minister Silvio Berlusconi, to back a bare-bones five-point programme of political reform, easing of austerity and job promotion. "The bell is also ringing for Europe," Mr Bersani said of the tax increases and spending cuts that had driven Italy deeper into its worst postwar recession.

The uncertain outcome in Italy's election triggered steep falls in European share prices, extending a sell-off in the US late on Monday. Yields on Italian 10-year bonds ended 40 basis points higher at 4.9 per cent. Spanish and Portuguese bond yields also rose sharply.

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The prospect of months of upheaval in the third-largest eurozone economy sent the euro to fresh lows for the year against the dollar. The single currency also saw significant falls against the yen as hedge funds pulled out of Italian equities and bonds and moved back into the Japanese currency haven.

"What we're left with is the feeling there'll be a lot more uncertainty again in terms of Europe's ability politically to deliver on the path that's been promised," said Paul Lambert, head of currency at Insight Investment.

Mr Bersani's move got a frosty response from Angelino Alfano, secretary of Mr Berlusconi's centre-right People of Liberty party, indicating that weeks of tough negotiations lie ahead before a new government takes office, possibly in late March.

"We have seen Bersani's declarations with regards to the future and the government of our country, but we did not see any future or any government," Mr Alfano said. He insisted that the centre-right would stick to its demands for sharp tax cuts and a rebate of a property tax levied by Mario Monti's unpopular technocrat government last year.

Despite the tense opening exchanges, it was quickly apparent that neither of the main parties want to go back to the polls and risk an outright victory by the Five Star Movement. "Italy must be governed," Mr Berlusconi said.

Besieged by the media outside his home in Genoa, Mr Grillo admitted he did not know what would happen next. The comic blogger-turned-politician ruled out a formal alliance with either of the "failed" parties, but suggested possible co-operation on the movement's agenda for radical political reform and rejection of austerity.

The movement "is not against the world but against a certain way of thinking", Mr Grillo said. "People have turned their back on politicians who are out of touch. We aren't all about protest, but about ideas," he added, while advising Mr Berlusconi to see a doctor about his mental health.